Important Business Finance Terms You Should Know

July 6th 2012 at 3:48pm Published by firstdownadmin

Having a grasp over financials and finance terms is necessary for almost every startup entrepreneur looking to go big in this economy. The world of finance is ever changing and the terms that applied in the past might not apply in the same manner currently.

If you want to develop your understanding of the world of finance, then you need to make sure that you are financially literate. The best way to be financially literate is to have a decent understanding of the financial terms that are currently making rounds in the financial world.

We take a look at some of these financial terms here and try to understand their meanings to see how they can help you:

Accounts Payable

Accounts payable is basically the term given to the amount you have to pay back to your creditors. Your creditors are basically people that you buy goods from on credit. When you make purchases on credit, the goods you have purchased and their amounts are recorded as accounts payable. It is best that you make the cash payment in time to get discounts on cash payment.

Accounts Receivable

Accounts Receivable are the complete opposite of accounts payable. These are also known as debtors, and include people who owe you money for buying on credit from you. The list for accounts receivable can include all of the people that have made purchases from you on credit. In short, the list includes people that you have made credit sales to.

Asset

An asset is an Accounting 101 term and goes to point towards any physical or intangible possession that you or your business currently owns. An asset could either be fixed or current. Fixed assets include buildings, motor vehicles and other assets with a face life of more than 1 year, while current assets include assets like cash, debtors and inventory.

Balance Sheet

The balance sheet is one term that you will probably get to hear a lot in your time as a business owner. The balance sheet is one of the most important statements created in the world of finance and includes all of your major heads after a period of trading. A balance sheet usually includes the total of Assets, along with pertinent distribution for current and non-current assets. The balance sheet also includes the total for your liabilities and the total for the financed by section of your business. The equation for the balance sheet should always remain the same, that is: Assets = Liabilities + Capital.

Cash Flow

Cash flow is another important business term that you need to know of. Understanding this term and what comes under it can help you manage cash properly and decide whether you want small business funding from a private funder or not.

Use your understanding of these financial terms for the best results possible.